Friday, April 28, 2000 Paducah, Kentucky
'Cannibalizing' aids USEC's cost-cutting
No new problems: State report finds no undisclosed health concerns at plant.
By Joe Walker email@example.com
USEC Inc. quarterly earnings rose $6.2 million from the same period last year, but the company is losing ground with declining prices for enriched uranium.
Trying to compensate, the firm is relying more heavily on the sale of Russian enriched uranium and a stockpile of natural uranium, which worries Congress, labor leaders and economic experts. USEC runs the Paducah Gaseous Diffusion Plant and its sister plant near Portsmouth, Ohio.
At a congressional hearing last month, concerns were expressed that USEC could close one or both plants and the government may have to bail out the enterprise it sold in a $1.9 billion public stock offering in July 1998. The hearing's chairman, Rep. Ed Whitfield, R-Hopkinsville, said USEC appeared to be "cannibalizing" itself.
To cut costs, USEC will eliminate about 425 jobs at each plant starting in July. It also is buying back 20 million additional shares of stock, has cut its dividend in half to 55 cents a share and predicted an earnings drop of 60 percent from this year to next. Yearly earnings this fiscal year are expected to be $107 million to $110 million, down from almost $121 million last year.
USEC earnings for the third quarter ending March 31 were $22.6 million, or 25 cents a share, up $6.4 million from the same period last year. The results reflect $31.4 million more in revenue, mainly from one-time replacement sales to Japanese customers, the company said. The plants sell to nuclear power plants worldwide.
USEC earned $71.3 million, or 77 cents a share, during the nine-month period. During the same time last year, earnings were $56.9 million, or 57 cents per share, excluding a special income tax benefit of $54.5 million related to USEC's becoming subject to income tax after it privatized.
Third-quarter revenue was $281.8 million, up $21.4 million from a year ago. Enriched uranium sales rose by $28.6 million on a 14 percent volume increase, but the average unit price dropped 2 percent.
The impact of declining prices was more dramatic during the past nine months. Sales were $960.3 million, $30.4 million lower than the same period last year. Although volume dropped 1 percent, the average price dipped 5 percent.
Meanwhile, USEC sold $44.9 million in natural uranium, compared with $19.4 million a year earlier.
USEC said increased buying of enriched uranium from Russia continues to drop plant output and raise overall production costs. As agent for uranium from dismantled nuclear warheads, USEC is paying Russia more for the material than it costs the plants to enrich it.
During the nine-month period, 41 percent of the product USEC needs came from Russia and 59 percent from the plants. A year ago, Russia provided 28 percent and the plants 72 percent.
USEC President and Chief Executive Officer William "Nick" Timbers said he expects to reach an agreement later this year to ease the prices paid for Russian uranium, but that would not take effect until January 2002.
After decades of work, the company stopped research last year on a promising laser-based technology called AVLIS that was a key reason for privatizing USEC. Less than a year after the sale, USEC said it was ditching AVLIS because recent tests proved it too expensive and hard to deploy commercially.
As a result, USEC spent $6.7 million on new technology research during the recent nine-month period, compared with $78.7 million during the same period a year ago. Although the company continues to look at other technologies, critics say the future looks grave without AVLIS.
Electricity accounts for about half the plants' production costs. USEC is trying to lower those costs and expects to exercise a three-year notice to end the current contract with Portsmouth supplier OVEC as of May 2003. That will save USEC its share of the huge cost of upgrades OVEC must make at its plants in the last two years of the contract, Timbers said.
Earlier this month, a financial analyst's report said the company should announce in late summer that it will close one of the two enrichment plants to save $65 million a year in power and labor costs, and complete the shutdown by July 1, 2001. The report said the plant that gets a multiyear power contract will stay open. Rich Rossi, who wrote the report, said Thursday that the Portsmouth power contract announcement is not a hint of which plant might close.
From a bondholder's perspective, the best news of the quarterly report was that USEC has cut its short-term debt by $113.3 million, Rossi said.